2018 (2) TMI 1264 - HC - Service Tax

Court rules no vested right to cross-utilize Education Cess credit; withdrawal deemed policy decision.

The court dismissed the writ petition, ruling that the petitioners did not possess a vested right to cross-utilize unutilized Education Cess (EC) and ... Utilisation of CENVAT credit - subsumption of cesses in tax rate - vested right to tax credit - prospective repeal/omission of statute - classification and Article 14 - scope of explanatory memoranda and budget speech - distinction from vested-right jurisprudence in Eicher MotorsUtilisation of CENVAT credit - subsumption of cesses in tax rate - vested right to tax credit - prospective repeal/omission of statute - classification and Article 14 - scope of explanatory memoranda and budget speech - distinction from vested-right jurisprudence in Eicher Motors - Unutilised credit of Education Cess and Secondary and Higher Education Cess as on 1st March, 2015 (excisable goods) and 1st June, 2015 (taxable services) cannot be cross utilised for payment of basic excise duty or service tax by reason of the Budget statements that the cesses were 'subsumed' in higher tax rates. - HELD THAT: - The Court held that the omission/withdrawal of the cesses operated prospectively and that manufacturers and service providers were entitled to credit only to the cutoff dates, after which EC and SHE ceased to be payable. The word 'subsumed' in Budget speech, explanatory memorandum and departmental note is a policy/communication device and does not constitute enactment or promise to permit cross utilisation of cesses; explanatory material may aid contextual understanding but cannot override the statutory scheme. The provisos subsequently inserted in the CENVAT Credit Rules are narrow concessions applicable to specified supplies or receipt dates and do not reflect a general rule of cross utilisation prior to the cutoff dates. The petitioners' reliance on vested right jurisprudence (Eicher Motors and Samtel) was rejected as distinguishable: those cases involved taking away an accrued right under an existing statutory scheme, whereas here cross utilisation was never permitted before the cesses were withdrawn and the amendments granted limited, forward looking concessions. The classification of cases benefiting from provisos is neither arbitrary nor in violation of Article 14. Consequently no legal right accrued to claim cross utilisation of accumulated EC/SHE beyond the statutory cutoff dates and the petitioners were not entitled to the relief sought. [Paras 11, 13, 16, 17, 18]Writ petition dismissed; unutilised EC and SHE credit as on the respective cutoff dates cannot be generally utilised for payment of excise duty or service tax.Final Conclusion: The challenge to Notification No.22/2015-CE(NT) and related claims for cross utilisation of unutilised Education Cess and Secondary and Higher Education Cess credits were rejected; the statutory withdrawal/omission of the cesses operated prospectively, limited concessional provisos were permissibly granted, and no vested right to cross utilise the credits arose. Issues Involved:1. Validity of Notification No. 22/2015-CE(NT) dated 29th October 2015.2. Utilization of unutilized Education Cess (EC) and Secondary and Higher Education Cess (SHE) credit for payment of service tax.3. Interpretation of the term 'subsumed' in the context of EC and SHE being included in excise duty and service tax.4. Vested rights to claim benefit of unutilized EC and SHE credit.5. Applicability of precedents such as Eicher Motors Limited and Samtel India Limited.Detailed Analysis:1. Validity of Notification No. 22/2015-CE(NT):The petitioners sought to quash Notification No. 22/2015-CE(NT) dated 29th October 2015, arguing it violated Articles 14, 19(1)(g), 265, and 300A of the Constitution of India. They contended that the accumulated credit of EC and SHE should be allowed for payment of service tax on telecommunication services. The court examined the statutory effect of the withdrawal of EC and SHE and found that the exemptions and omissions were prospective, not retrospective. The court concluded that the withdrawal of EC and SHE was a policy decision and did not infringe upon the petitioners' constitutional rights.2. Utilization of Unutilized EC and SHE Credit:The petitioners claimed a vested right to utilize unutilized EC and SHE credit for payment of service tax, arguing that EC and SHE were subsumed into the increased rates of excise duty and service tax. The court noted that cross-utilization of EC and SHE credit was never permitted under the earlier provisions, and the new notifications only provided limited concessions. The court held that the petitioners were not entitled to claim a vested right to cross-utilize the unutilized EC and SHE credit.3. Interpretation of 'Subsumed':The petitioners relied on the Finance Minister's Budget Speech and other explanatory materials, which stated that EC and SHE were subsumed into the increased rates of excise duty and service tax. The court clarified that the term 'subsumed' was used to explain the balancing act of increasing taxes while withdrawing cesses, and did not imply that EC and SHE continued to exist as part of the higher tax rates. The court emphasized that the statements made in the Budget Speech and explanatory notes were not legally binding and did not confer a right to cross-utilize EC and SHE credit.4. Vested Rights to Claim Benefit of Unutilized EC and SHE Credit:The court examined whether the petitioners had a vested right to claim the benefit of unutilized EC and SHE credit. It referred to the Supreme Court's decision in Hingir-Rampur Coal Company Limited, which distinguished between taxes and fees, and noted that EC and SHE were specific cesses with distinct purposes. The court concluded that the petitioners did not have a vested right to cross-utilize the unutilized EC and SHE credit, as the cesses were abolished and ceased to be payable.5. Applicability of Precedents:The petitioners relied on the Supreme Court's decisions in Eicher Motors Limited and Samtel India Limited, which dealt with the lapsing of credit under different circumstances. The court distinguished these cases, noting that in Eicher Motors, the credit was taken away despite the tax/duty not being withdrawn, whereas in the present case, EC and SHE were abolished. The court also referred to the decision in Osram Surya (P) Ltd., which upheld the imposition of a time limit for claiming MODVAT credit, and found that the petitioners' reliance on Eicher Motors was misplaced.Conclusion:The court dismissed the writ petition, holding that the petitioners did not have a vested right to cross-utilize the unutilized EC and SHE credit for payment of excise duty or service tax. The court emphasized that the withdrawal of EC and SHE was a policy decision, and the term 'subsumed' did not imply a continuation of the cesses as part of the higher tax rates. The court also distinguished the petitioners' reliance on precedents, noting that the circumstances in those cases were different.